Oil and gas prices will remain on a long-term upward trend, and the U.S. is heading for a gas squeeze this summer, according to Marshall Adkins, managing director and head of energy research at Raymond James & Associates. Recent energy prices have been led by natural gas, and he still is bullish on gas, but expects oil-stock prices to improve too, he said at the recent Independent Petroleum Association of America (IPAA) 75th anniversary meeting. Gas remains a cyclical commodity even though the gas bubble popped in 1995, but with higher prices, gas cycles could moderate, he expects. The basics don't look good for growth in gas production. The U.S. rig fleet, which is slanted toward gas, is reducing capacity, while the rest of the world is increasing rig capacity. Well success rates in this country are better, and operators are producing faster. They are drilling in deeper water and to deeper formations to find smaller reserves-approximately 20% to 30% smaller than 20 years ago. Recent Gulf of Mexico well volumes are only 3% of the initial potential of wells discovered offshore 50 years ago. According to Energy Information Administration figures, gas production increased slightly last year, but operator reports tell a different story, Adkins said. During the past two years, the rig count has climbed 60%, while production has declined. Last year, that decline amounted to 4%, and it should reach 3% this year. In addition, high gas prices last year killed industrial demand of up to 4 billion cubic feet per day. Adkins predicts that, if oil stays in the $35- to $40-per-barrel range for long, gas prices will climb to $8 per million Btu this summer. As a rule of thumb, an analyst divides the oil price by 5.5 to get the mid-point for gas prices. Current oil inventories suggest $30 is the right price for oil now, but the price is at about $38, thus the market has put an $8 security premium on the price. Around the world, oil demand is growing at an unbelievable rate and probably will climb by 2.5 million barrels a day this year, he added. The slow pace of pipeline construction in Russia is slowing production from that country. Only seven OPEC countries produce more than 2 million barrels of oil a day, and five of those countries aren't stable, he added. If one goes offline, the world could see $70 oil. If Saudi Arabia goes offline, even the U.S. Strategic Petroleum Reserve couldn't make up the deficit, he added. In spite of the uncertainties facing the industry, he added, last year was an outstanding year for energy securities offerings and this year should be good, as well, as continuing fundamentals in the oil and gas industry open doors on Wall Street. 2003 represented the biggest equity-offering year in two decades and that window of opportunity will remain open through 2004 and into 2005. Moving into the future, interest rates should drift upward, and the public-equity side still is trending upward because of high oil and gas prices and the recent performance of public deals, which showed an average return of 37%. "The market likes to go back to things that have worked recently," he said. -Don Lyle